Crypto Payroll Compliance: How to Legally Pay Employees and Contractors in Virtual Assets in Georgia

Table of contents

Introduction: The Rise of Crypto Payroll in Georgia

What is Crypto Payroll and Why Is It Gaining Popularity in Georgia?

Legal Framework for Paying Employees and Contractors in Crypto in Georgia

How to Pay Employees in Crypto: Step-by-Step Guide

Tax Implications of Paying Employees and Contractors in Crypto

When Is Crypto Payroll Not Suitable?

Best Practices for Maintaining Crypto Payroll Compliance

How Gegidze Can Help with Crypto Payroll Compliance in Georgia

Conclusion: Crypto Payroll in Georgia – A Simple, Efficient Solution for the Future

Frequently Asked Questions (FAQs)

Introduction: The Rise of Crypto Payroll in Georgia

As the cryptocurrency industry continues to grow, many businesses are adopting crypto payroll to pay employees and contractors in virtual assets instead of traditional currencies.

Georgia, with its crypto-friendly tax policies, has become an ideal location for companies to implement crypto payroll due to its low tax rates and business-friendly regulations.

However, while paying in crypto offers numerous benefits, such as faster payments, lower transaction fees, and access to global talent, it also requires businesses to comply with certain taxation and regulatory frameworks.

The key to running a legal crypto payroll system in Georgia is understanding the compliance rules set forth by Georgian authorities. In this blog, we’ll explain how to legally pay employees and contractors in virtual assets, ensuring crypto payroll compliance in Georgia.

What is Crypto Payroll and Why Is It Gaining Popularity in Georgia?

What is Crypto Payroll?

Crypto payroll refers to paying employees or contractors in cryptocurrency (such as Bitcoin, Ethereum, or stablecoins) instead of using traditional fiat currencies. As cryptocurrencies have gained mainstream adoption, businesses are increasingly choosing to pay in crypto for several reasons:

• Faster payments across borders, reducing transaction times from days to minutes.

• Lower transaction fees, particularly for cross-border payments.

• Access to a global talent pool, as paying in crypto allows businesses to avoid issues related to currency exchange and banking fees.

Georgia has been recognized as one of the most crypto-friendly countries, offering significant advantages to businesses that choose to pay employees in crypto. As a result, more remote businesses and startups in Georgia are adopting crypto payroll systems.

Legal Framework for Paying Employees and Contractors in Crypto in Georgia

Cryptocurrency as Legal Tender in Georgia

Georgia is a crypto-friendly jurisdiction, but it’s important to note that cryptocurrency is not considered legal tenderin the country. This means that cryptos like Bitcoin and Ethereum are not automatically recognized as currencies for everyday transactions. However, cryptocurrency is recognized as a digital asset and can be used to pay for goods and services under certain conditions.

For businesses wishing to pay employees in crypto, the Revenue Service Georgia has outlined the following key regulations:

• Crypto payments for employees: Paying employees and contractors in crypto is permissible, but both the employer and employee must report the payments correctly for tax purposes.

• Employer of Record Georgia: Businesses using crypto payroll often partner with an employer of record (EOR)in Georgia to handle local compliance, employment contracts, and taxes.

Virtual Asset Service Provider (VASP) Licensing

If your business is handling large-scale crypto transactions or managing crypto assets on behalf of clients, you may be required to obtain a VASP license in Georgia. A VASP license Georgia allows companies that deal with virtual assets (such as crypto exchanges, wallet providers, or businesses facilitating crypto transactions) to legally operate in the country.

However, if you’re simply paying employees or contractors in crypto, you generally do not need a crypto license in Georgia as long as your business activities fall under the personal payroll model and not crypto financial services.

How to Pay Employees in Crypto: Step-by-Step Guide

If you decide to implement crypto payroll for your employees or contractors in Georgia, here’s a step-by-step guide to ensure compliance:

Step 1: Set Up Your Company Account

First, ensure that your business is properly registered in Georgia, either as an Individual Entrepreneur (IE) or a Limited Liability Company (LLC). This is crucial for tax reporting and compliance with Georgian law.

Step 2: Obtain a VASP License (if Necessary)

If your business offers crypto services, such as crypto wallet management, crypto exchanges, or digital asset custody, you may need to apply for a VASP license in Georgia. For crypto payroll, you typically do not need this license unless you're offering intermediary crypto services.

Step 3: Choose the Right Cryptocurrency for Payments

Select the cryptocurrency (Bitcoin, Ethereum, stablecoins, etc.) you plan to use for payroll. Many companies prefer stablecoins (like USDT or USDC) because their value remains stable against fiat currencies, minimizing the risk of volatility in employee salaries.

Step 4: Agree on Payment Terms with Employees

Ensure that your employment agreements clearly outline the terms of crypto payments, including the cryptocurrency to be used, payment schedules, and how conversion rates will be handled. This helps avoid confusion and sets clear expectations.

Step 5: Calculate Tax Obligations

While Georgia has 0% capital gains tax for crypto investments, crypto payroll payments are still subject to personal income tax. The Revenue Service Georgia requires employers to withhold tax on crypto payments as they would for any other salary.

• Withholding tax: Calculate the personal income tax (20% in Georgia) for the total value of the crypto payment based on the current exchange rate (from fiat to crypto).

• Social security contributions: Employers must also account for social security contributions and employment taxes, which apply to wages and salary equivalents in crypto.

Step 6: Record and Report Payments

Ensure that all crypto payments are recorded in your business’s accounting system, with details on transaction amounts, exchange rates, and wallet addresses. Accurate record-keeping is essential for tax reporting to the Revenue Service Georgia and for audits.

Step 7: Ensure Proper Translations

Any contracts, payroll agreements, and payment documentation must be translated into Georgian to comply with local tax regulations. Using certified English to Georgian translations ensures that these documents will be accepted by local authorities.

Tax Implications of Paying Employees and Contractors in Crypto

Although cryptocurrency is not legal tender in Georgia, the country’s taxation system allows for crypto payroll under certain conditions. Here’s what you need to know about the tax implications of paying in crypto:

1. Personal Income Tax

Even though crypto profits are exempt from capital gains tax in Georgia, crypto payroll is still subject to personal income tax. The Revenue Service Georgia taxes wages and salaries at 20% for residents. Employers are required to withhold taxes from employees’ crypto payments and submit them on their behalf.

2. Social Security Contributions

Employers must also make social security contributions for employees, just as they would for traditional salary payments. These contributions are based on the equivalent fiat value of the crypto payment, so it’s important to use an up-to-date exchange rate when processing payroll.

3. No VAT on Crypto Services

Georgia applies 0% VAT on crypto transactions, including crypto payroll. This makes Georgia a highly attractive location for crypto payroll services, as there are no additional VAT charges for businesses that use cryptocurrency for transactions.

When Is Crypto Payroll Not Suitable?

While crypto payroll is an attractive option, it’s not suitable for every business. Here are some situations where crypto payroll may not be the best choice:

1. Employees Without Crypto Wallets

If your employees or contractors don’t have crypto wallets, paying them in crypto becomes impossible. You may need to educate employees on how to set up wallets or offer fiat payment options as a backup.

2. Legal Tender Requirements

Since crypto is not legal tender in Georgia, employees cannot directly use crypto for daily purchases like rent or utilities unless those services accept crypto payments. This means employees may need to convert their crypto back into fiat regularly, which can introduce volatility risks.

3. Crypto Volatility

If your business or employees are not comfortable with the price fluctuations of cryptocurrencies, stablecoins are a better option. However, even stablecoins can fluctuate slightly, so it’s important to clearly agree on terms in the employment contract.

Best Practices for Maintaining Crypto Payroll Compliance

To ensure your crypto payroll system is compliant and efficient, consider the following best practices:

1. Maintain Clear Records

Document all crypto transactions, including the amount of cryptocurrency paid, its equivalent fiat value at the time of payment, and any associated transaction fees. This will help with both tax filings and audits.

2. Use Stablecoins for Payroll

For predictable payments and reduced volatility, consider paying employees in stablecoins like USDT or USDC. This helps avoid fluctuations in the value of cryptocurrency when paying salaries.

3. Consult with Tax Experts

Since crypto taxation is a developing field, it’s essential to consult with tax professionals to ensure your crypto payroll system complies with Georgian tax laws and international best practices.

4. Periodic Review

Regularly review your crypto payroll system to ensure it remains compliant with Revenue Service Georgia regulations, especially as crypto regulations evolve.

How Gegidze Can Help with Crypto Payroll Compliance in Georgia

Gegidze specializes in helping businesses set up crypto payroll systems that are fully compliant with Georgian tax law. We assist in:

• Setting up crypto payroll systems.

• Ensuring VASP licensing if necessary.

• Coordinating with Georgian banks for crypto payments.

• Certified translations for employment agreements and payroll documentation.

• Ongoing compliance support with the Revenue Service Georgia.

Conclusion: Crypto Payroll in Georgia – A Simple, Efficient Solution for the Future

Crypto payroll is becoming an increasingly popular and viable payment method for employees and contractors in Georgia. With 0% capital gains tax on crypto profits, the country provides an ideal environment for crypto-friendly businesses to pay employees in virtual assets.

By following the steps outlined in this blog and working with experts like Gegidze, your business can establish a compliant crypto payroll system, reducing transaction costs and enhancing employee satisfaction.

Ready to set up crypto payroll for your employees and contractors in Georgia?

Book a free consultation with Gegidze today to ensure your system is compliant with Georgian tax laws and regulations. We’ll guide you through every step, from obtaining a VASP license to ensuring tax compliance.

Frequently Asked Questions (FAQs)

Can I legally pay employees and contractors in cryptocurrency in Georgia?Yes, businesses in Georgia can legally pay employees and contractors in cryptocurrency, provided they comply with local tax regulations. While crypto is not legal tender, it is accepted as a form of digital asset payment. Employers must ensure that income tax and social security contributions are correctly withheld for crypto payroll.

Do I need a VASP license to pay employees in crypto in Georgia?No, a VASP license is only required if your business operates a crypto exchange, provides crypto wallet services, or engages in other crypto financial services. For crypto payroll, you do not need a VASP license in Georgia, but compliance with taxation and employee registration is still necessary.

How is crypto payroll taxed in Georgia?Crypto payroll is subject to personal income tax at a rate of 20%. Employers must withhold the tax and report it to the Revenue Service Georgia. Social security contributions also apply, based on the equivalent fiat value of the crypto payment. Employers should keep accurate records for reporting purposes.